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Who Is This Hornswoggler?

Andrew Wheeler has worked in book publishing for 25 years. He spent 16 years as a bookclub editor (for the SFBC and others), and then moved into marketing. He marketed books and other products for Wiley for eight years, and now works for Thomson Reuters. He was a judge for the 2005 World Fantasy Awards and the 2008 Eisner Awards. He also reviewed a book a day for a year twice. He lives with The Wife and two mostly tame sons (Thing One, born 1998; and Thing Two, born 2000) at an unspecified location in suburban New Jersey. He has been known to drive a minivan, and nearly all of his writings are best read in a tone of bemused sarcasm. Antick Musings’s manifesto is here. All opinions expressed here are entirely and purely those of Andrew Wheeler, and no one else.

Wednesday, February 22, 2012

We all knew this was coming: Amazon has removed Kindle editions from all books distributed by IPG, after IPG wouldn't renegotiate selling terms (for both e and print products) to change them massively in Amazon's favor.

We have a word for this behavior when ten-year-olds do it: bullying.

And if IPG folds, it'll be a PGW or a medium-rank publisher next, then more, and it'll hit Random, Penguin, and the other big boys by the end of this year. I don't know how other publishers can support IPG -- I mean literally, since any collective action would be evidence of collusion -- but I do know that everyone who works for a publishing company is going to be quietly rooting for them.

(And, at times like this, it's important to remember that Amazon is almost certainly selling both the Kindle devices and most Kindle books published by others at below their cost: they are, once again, trying to directly buy market share and eliminate competition.)

The big six have put themselves in this position -- handing AMZN a gun to hold to their head -- by insisting on DRM on ebooks. Being publishers, not IT folks, they didn't care *who* ran the DRM servers. This was, as they say, a Big Mistake.

Around 80% of the US ebook-buying public are locked into AMZN. Because they can't get the books they want without DRM, customers have an incentive to stick with their existing DRM platform, and because AMZN got rolling first with the biggest range of books, it's their DRM platform that locks in the customers (and in the darkness binds them). Network externalities drive customers towards the biggest network in town, which becomes a self-reinforcing monopoly for AMZN. Much as Apple's early initiative on music (with DRM mandated by the music studios) turned the iPod/iTunes nexus into a near-monopoly.

In the case of Apple, the music studios woke up, smelled the coffee, and backed away from mandatory DRM in 2009/10. And they were lucky; APPL saw the iTunes Store as a way of shifting hardware at first, which was where their profits came from. But AMZN isn't really a hardware company (except insofar as they've discovered that Kindle owners will buy more books, so they sell the hardware at near break-even and make their money on the downloads). AMZN wants to maximize profits on the ebooks they sell. And cutting the publishers out of the author-publisher-wholesaler-public loop would allow them to add a chunk more profits on top.

TL;DR: If the Big Six don't back away from DRM within the next 18 months, they're going to cut their own throats.

I don't understand how Amazon can get away with selling at below cost. I thought it was illegal to have predatory pricing. It's not like they're just starting out and are a small business trying to break into the industry. They're slaughtering it with unfair business practices, not to mention bullying ones.

And if publishers all decide to not meet Amazon's terms, because Amazon is pricing them into bankruptcy, that's just good business practice.

So Amazon wants to maximize it's own profits by cutting out the middle and making this industry a joke be removing the gatekeepers that would have prevented a lot of the crap masquerading as novels these days.

Elizabeth: Lots of companies sell below cost -- Wal-Mart does it all the time, and so do most supermarket chains. They're generally called loss leaders. What makes Amazon distinctive is that they've made an entire line of business -- ebooks and their hardware now, and traditional print book back in the early days (for those of us who remember it) into loss leaders.

Amazon, though, is not maximizing its own profits; it's trying to dominate through market share -- this is an important distinction.